Starbucks U.K. taxes: Committees to examine company's practices

Starbucks’ coffee menu famously baffles some people. In Britain, it’s their accounts that are confusing. Starbucks has been telling investors the business was profitable, even as it consistently reported losses.

This apparent contradiction arises from tax avoidance, and sheds light on perfectly legal tactics used by multinationals the world over. Starbucks stands out because it has told investors one thing and the taxman another.

LONDON – Two British parliamentary committees are due to quiz tax officials about how Starbucks was able to avoid paying tax on 1.2-billion pounds (US$1.93-billion) of sales since 2009.

Lawmakers said a Reuters report that showed Starbucks had been telling investors its U.K. unit was highly profitable while telling British authorities the unit was lossmaking, and thereby not liable for tax, undermined public trust in the tax system.

Margaret Hodge, chair of the Public Accounts Committee and a member of parliament for the center-left opposition Labour party, is among several lawmakers who said they wanted Her Majesty’s Revenue and Customs (HMRC), the U.K. tax authority to launch a investigation into Starbucks’ tax affairs.

Hodge said the head of HMRC and other officials would be testifying to the committee, which is tasked with ensuring value in government financial affairs, next month and that HMRC had “questions to answer” over about Starbucks’s practices.

There was no evidence that Starbucks had been engaged in any kind of wrongdoing. It said it paid its tax in Britain to the letter of the law.

The Treasury Subcommittee, which oversees HMRC, is also due to question HMRC officials and its chairman, lawmaker George Mudie, said he planned to question them about Starbucks.

He said he also hoped the committee could hear from executives from the company, although he noted he would need broader committee support to call the company to testify.

Labour members of parliament John Mann, who sits on the subcommittee, said he would like it to hold an investigation focusing on Starbucks but Mudie said this was unlikely.

HMRC does not comment on individual taxpayers and rejected any challenge to its efficacy.

“We make sure that multinationals pay the right tax to the U.K. in accordance with U.K. tax law,” it said in a statement.

Steve Baker, a member of parliament for the center-right Conservative party that rules in coalition, also called for an inquiry.

“I am a highly free market person but what I want is simple transparent tax law that is actually obeyed … there are some serious questions to answer here,” he said.

“LETTER OF THE LAW”

Taxpayer confidentiality means HMRC would not be able to confirm a probe even if it did launch one.

Baker and Hodge said the government could get around this and reassure the public the matter was not being ignored, by it confirming in parliament that an HMRC probe was taking place.

Labour member of parliament Michael Meacher said he planned to table a motion asking the government to launch its own investigation into Starbucks and potentially other big companies that are paying minimal taxes on big UK revenues.

Starbucks pays and will continue to pay our share of taxes in the U.K. to the letter of the law

The legislators said such investigations should also lead to recommendations on how to change tax law to prevent companies from shifting profits overseas.

Starbucks declined to say if it was considering any changes to its accounting practices but said it was “totally committed to the U.K.”

“Starbucks pays and will continue to pay our share of taxes in the U.K. to the letter of the law,” Kris Engskov, managing director of Starbucks Coffee U.K., said in a blog on the company’s website.

He went on to note Starbucks’ contribution to the U.K. economy as an employer and as a customer for farmers and cake makers.

Unions said the Reuters story on Starbucks showed the government needed to do more to close loopholes that allowed companies avoid taxes.

“Hardworking families are being forced to pay off the deficit while companies like Starbucks laugh all the way to the bank,” Unite General-Secretary Len McCluskey said.

The Northern Ireland Committee of the Irish Congress of Trade Unions called for a boycott of the cafe chain, a call echoed by some members of parliament.

“Support local cafes and bars, and send Starbucks and other tax dodgers a clear massage — Unless you contribute to society, this society has no cash for your coffee,” ICTU Assistant General-Secretary Peter Bunting said.

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